Our law firm has a very narrow practice focus. We help people contest the wrongful denial of life insurance claims. As such, we’ve seen just about every illegitimate claim denial justification the insurance companies can dream up. We’re proud that we’ve made it our business to assist real people in overcoming their dirty tactics.
Every once in a while, however, we come across a situation that reminds us that not every claim denial can be overturned. Sometimes, if the policyholder has done something far outside the law, we have to look an intended policy beneficiary in the eye and say, “we’re sorry … we can’t help you.” Those conversations are some of the most difficult we ever have to have, mainly because it is rarely the beneficiary’s fault that a policy is rendered ineffective.
Consequently, we are using this article as a cautionary tale for anyone who is considering obtaining a life insurance policy. If you’re seriously considering such a policy, it’s probably because you want to make sure your loved ones are financially secure after you pass away. That is a wise and respectable decision. What is unwise, however, is to think you can somehow “game the system” and obtain a policy you’re not entitled to receive. In fact, doing so may only make things worse for your intended beneficiaries when you die.
You have to tell the truth when applying for life insurance
Life insurance is really no more than a simple contract between the life insurance company and the policyholder. Like all legally binding contracts, it has to be based on the truth. In other words, when the parties to a contract are in the negotiation phase, they have to be truthful with one another. If one party lies and the other party enters the contract only because of that lie, the second party may be able to avoid his contractual obligations in the future.
In the life insurance context, contract negotiations occur by way of the potential policyholder filling out an application for insurance. Typically, the life insurance application will ask about things like health history, exercise frequency, and certain lifestyle habits such as smoking or drinking. The insurance company relies on the truthfulness of this information in deciding whether to issue you a life insurance policy and, if so, how much the premiums should be.
Perhaps not surprisingly, people are often tempted to tell little white lies in the application process. Sometimes, these lies are not significant enough to make much of a difference to the insurer. Things like underestimating your weight by five or six pounds, stating that you exercise a little more frequently than you do, or misstating your pulse rate by a couple points are not enough to render you uninsurable.
Other lies, however, have a much greater impact on your life insurance.
There’s no escaping it, some lies are just plain fraud
There is one lie that arises all the time in the life insurance context that is simply inescapable. For some reason, people think they can get away with telling their life insurance company that they are non-smokers when they have actually been smoking for years. There is a world of difference between telling a little white lie about your current weight and telling this monumental lie about a hobby that can actually kill you.
In fact, some lies about smoking habits are so big that they are considered fraud. Let’s consider two extreme examples to make our point. First, consider the person who claims on a life insurance application that they are a non-smoker when, in truth, they usually enjoy a cigar every New Year’s Eve. While that person has been technically untruthful in the application, it is unlikely an insurance company would have denied a policy had it known the truth.
At the other extreme, consider the person who has been a pack-a-day smoker for over twenty years. When that person claims to be a non-smoker in their life insurance application, the lie likely has a great impact on the insurer’s decision to issue a policy. Indeed, life insurance companies routinely refuse to insure regular smokers. They do this because decades of research have linked regular cigarette smoking with fatal conditions like heart disease and lung cancer. Because of this, lies about cigarette smoking rise to the level of fraud. That is a very significant label from a legal perspective.
Material misrepresentations vs. fraud
Legally speaking, there are many subtle differences between a material misrepresentations and fraud that are beyond the scope of this article. The difference in the life insurance context is huge. If a policy applicant makes a material misrepresentation in his life insurance application, dies within two years of policy issuance, and the insurer discovers the lie, it can refuse to make a death payout to the beneficiary.
This is permissible because the insurance company is still within the two-year “period of contestability.” As such, the insurer still has the right to nullify the policy based on that lie. Material misrepresentations might include things like stating your blood pressure is 120/70 when your medical records reveal it has been 150/90 for several years. While the truth may not have caused the insurer to deny you a policy, the company might have charged you higher premiums during your life.
The lie about being a non-smoker when you actually smoked a pack a day for twenty years? That’s a whole different category of lie. That lie likely constitutes fraud. And, most significantly, if your life insurer discovers that lie at any time after your death – including any time after the two-year period of contestability has closed – it can absolutely refuse to pay your beneficiaries.Of course, not every case is this cut and dried. In some instances, the life insurer still may be in the wrong when it denies a claim based on alleged fraud. If you have questions about this type of situation, please call our firm today. We’re here to help.